Intangible Capital in the Netherlands and its Implications for Future Growth

2010 – In the Netherlands almost half of the economic growth between 1995 and 2008 is due to investment in knowledge and innovation. This is the conclusion of the American research institute The Conference Board. The study provides a solid quantitative support for the claim that spending on education, research and innovation are highly profitable.

The study concludes that almost half of the economic growth between 1995 and 2008 came from investment in knowledge and innovation. Of that half  one-third comes from public investment and two-thirds from private investment. The research also shows that if the growth in knowledge investment that we have seen in recent years will not continue, and we just let it rise with inflation, economic growth will remain 0.4 to 0.6 percent in the next decade. By not investing extra the Netherlands will lose between 68 and 123 billion euros of its national production between 2010 and 2020.
The Conference Board also examined three scenarios for public and private research investment for the period 2010 – 2020. The first scenario builds on the existing policy in which the intangible investments rise in the rate of 2000-2008. In this scenario GDP grows by 1.9%. In the pessimistic scenario, the knowledge investments rise only as much as inflation. In this scenario, the Netherlands will miss  economic growth in 2020 and the growth of GNP will stab at 1.5 percent. The board also calculated a scenario that further accelerates the knowledge investments. In this scenario, the GDP grows by 2.1 percent in 2020. Because the effects of investment in basic and secondary education will be visible later the difference in growth will increase further after 2020. Van Ark: “Our data show that knowledge and innovation investments affect the growth performance of an economy at the macro level dramatically."

The Conference Board survey is conducted by a Dutchman, Bart van Ark, chief economist at The Conference Board, and also a professor of economics at the University of Groningen. Van Ark and his colleagues have developed a dataset that measures the tangible and intangible costs in the private and public sector from 1995 to 2008. Tangible assets include machinery, vehicles and buildings. Intangible assets include research and development, economic competencies as brand names, organizational structures, business-specific knowledge and computer software. A unique aspect of the research is that public spending on research and development and education are explicitly included. The study notes that the Dutch economy on average invest more than 14 percent of its GDP  in intangible assets.

The full report: Intangible Capital in the Netherlands and its implications for future growth (2010) Bart van Ark et al. is attached.